Big institutional investors will embrace illiquid private market assets and active investment strategies in 2016 against a backdrop of market volatility and divergent monetary policy, a new BlackRock survey has found.
The move is in response to the challenges many institutions worldwide face in generating sufficient returns to meet liabilities, says BlackRock. The asset manager points to the results of the poll of 174 of its largest clients, representing £4.6trillion, which signals a shift away from traditional asset classes and passive investments that have been at the core of many portfolios.
Long-dated illiquid strategies are anticipated to be the largest beneficiaries in 2016, with real assets attracting the greatest interest, the survey shows. Over half – 53 per cent – of large institutions globally are looking to increase allocations, compared to just 4 per cent who intend to reduce exposure. The data shows 47 per cent of investors plan to increase allocations to real estate, versus 9 per cent who would decrease.
In Europe, 60 per cent of institutions intend to increase exposure to real assets and 57 per cent plan to enhance real estate allocations, compared to 7 per cent planning reductions across both sectors.
Within fixed income and equities, illiquid private markets investments and active strategies are finding increasing favour. The research found 55 per vent of fixed income investors plan to increase private credit exposure, compared to 5 per cent who plan to decrease. Meanwhile, securitised assets – 31 per cent increase, 7 per cent decrease – and unconstrained strategies – 23 per cent increase, 7 per cent decrease – also look set to capture inflows. Core and core plus fixed income investments, which typically include passively managed securities with traditional benchmarks, will lose out with one in three institutions intending to decrease allocations, compared to 14 per cent planning to increase.
While overall equity holdings expect to face reductions in 2016, private equity is set to prosper, with 39 per cent of global institutions intending to increase allocations to the asset class, against 9 per cent who intend to reduce exposure.
BlackRock head of institutional client business Mark McCombe says: “The declines in commodity markets, uncertain economic growth in emerging markets and volatility in global equities are driving a repricing of assets globally. The ripple is causing investors to increasingly look to manage risk, as they seek alternative ways to generate returns.
“Many are looking to illiquid assets to insulate themselves from market volatility and reap the rewards of illiquidity premia.”